Dimensional Launches California Municipal Bond ETF to Capture Factor Risk Premia

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Dimensional Fund Advisors has launched a new actively managed fixed income ETF called the California Municipal Bond ETF (DFCA US). The ETF aims to capture factor risk premia within the Californian municipal bond market.

The fund focuses on investment-grade securities that are exempt from state taxes in California. It includes a range of eligible securities such as revenue bonds, general obligation bonds, industrial development bonds, municipal lease obligations, commercial paper, and variable rate demand obligations.

With a long history of factor-based investing, Dimensional utilizes a daily, flexible process to position the portfolio for superior returns relative to the benchmark. The fund targets a credit quality similar to the S&P Intermediate Term California AMT-Free Municipal Bond Index and maintains a dollar-weighted average duration within certain parameters compared to the benchmark.

Dimensional aims to capture returns associated with term premia, which represents the expected relative return from investing in longer-dated securities compared to shorter-dated securities when this factor is perceived to be favorable.

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